Can I Just Say Goodbye to My Private Student Loans Under the Statute of Limitations?

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Question:

Dear Steve,

Thank you for providing a resource like this. My situation is rather mild, but the numbers are rather extreme.

I have some federal student loans and 2 different companies for private student loans. I have $70,000 in student loans, and I am not able to find a job in my field, so I am only making $20,000 per year.

I understand the statue of limitations does not apply to federal loans. Is this correct?

For private loans, does the statute of limitations change state by state? Or is it always “4 years” everywhere, with the loan falling off my credit report after “7 years?”

Could this be a wise choice for someone with $70,000 in student loans making $20,000 per year? The debtors are willing to negotiate an IBR plan, but I am barely paying into the principal; instead, all of my money is going to interest.

I understand that with this large amount, I am likely to be sued. What are my other options?

Again, thank you for your help.

Sam

Answer:

Dear Sam,

You are correct, federal loans have no statute of limitations. But it’s interesting, not all debts owed to the government are treated the same. For example, debts owed to the IRS can be discharged in bankruptcy after a certain period of time. Federal student loans are much more temperamental and complex to discharge at the moment.

The statute of limitations is a tricky thing. On face value it seems like a very clear tool to use, but it’s really anything but simple.

There are different things that can trigger the clock to start running again on the clock for the statute of limitations. For example, in some places if you make a payment, promise to pay or even acknowledge the debt it can cause the clock to reset.

One issue that most people get wrong is the statute of limitations does not prevent you from being sued over a debt. It is a defense you can raise if you are sued to stop the suit from moving forward. But even if you are effective on that, a debt owner can still attempt to collect on the debt, just without suing you.

So my advice is that if you are considering relying on the statute of limitations or rules regarding time barred debts, you should absolutely pay for great legal advice from an attorney who is licensed in your state. There is absolutely no substitute for a legal opinion you can rely on to stand your ground and know when the lender is bluffing or trying to scare you.

The Income Based Repayment plan is only for federal student loans. Private student loan lenders are not required to offer any such solution. However, that being said, some private student loan lenders will offer a settlement and even if you are sued, it is still an opportunity to resolve the situation. See Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.